ARCHIVED - Anti-dumping and Countervailing Program

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OTTAWA, August 4, 1995

4258-93
AD/1014

STATEMENT OF REASONS

IN THE MATTER concerning the variance of the final determination of dumping regarding certain corrosion-resistant steel sheet from the United States of America

DECISION ON REMAND

Pursuant to paragraph 41.1(2)(a) of the Special Import Measures Act, the Deputy Minister of National Revenue has, on this date, varied the final determination of dumping made on June 29, 1994, respecting certain corrosion-resistant steel sheet products originating in or exported from the United States of America.

This Statement of Reasons is also available in French.
Cet énoncé des motifs est également disponible en français.

STATEMENT OF REASONS

DECISION ON REMAND

On August 4, 1995, pursuant to paragraph 41.1(2)(a) of the Special Import Measures Act (SIMA), the Deputy Minister of National Revenue (Deputy Minister) varied the final determination of dumping made on June 29, 1994, respecting certain corrosion-resistant steel sheet products originating in or exported from the United States of America.

This action results from a remand on June 23, 1995, by a Binational Panel (Panel) to the Deputy Minister.

PRODUCT DEFINITION

The subject goods are defined as:

"flat-rolled steel sheet products of a thickness not exceeding 0.176 inches (4.47 mm), coated or plated with zinc or an alloy wherein zinc and iron are the predominant metals, excluding automotive exposed qualities designed for and used in the manufacture of outer body components for motor vehicles, originating in or exported from Australia, Brazil, France, the Federal Republic of Germany, Japan, the Republic of Korea, New Zealand, Spain, Sweden, the United Kingdom and the United States of America."

BACKGROUND

As a result of a complaint filed by Dofasco Inc. and Stelco Inc., both of Hamilton, Ontario, a dumping investigation was initiated on November 17, 1993, with respect to certain corrosion-resistant steel sheet originating in or exported from Australia, Brazil, France, the Federal Republic of Germany, Japan, the Republic of Korea, New Zealand, Spain, Sweden, the United Kingdom and the United States of America. On June 29, 1994, the Deputy Minister made a final determination of dumping respecting the subject goods pursuant to paragraph 41(1)(a) of SIMA.

On July 29, 1994, the Canadian International Trade Tribunal issued a finding of injury respecting the subject goods.

Following the final determination of dumping, four United States exporters requested a review of this decision by a Panel established pursuant to Article 1904 of the NAFTA. The four complainants are U.S. Steel, A Division of USX Corp., Inland Steel Company, I/N Kote and LTV Steel Company.

CONCLUSIONS OF THE PANEL REVIEW

On June 23, 1995, the Panel remanded three issues related to the final determination of dumping back to the Deputy Minister for reconsideration and action within 45 days.

The Panel directed the Deputy Minister to:

1. reconsider whether there was evidence on the record that the Bessemer and Lake Erie Railroad ("B&LE") railroad antitrust judgement against U.S. Steel (U.S.S.) was related to subject goods;
2. remove the interest expense arising from the Coal Industry Retiree Health Benefit Act of 1992 (Coal Act) from the costs of the subject goods produced by LTV Steel Company (LTV); and
3. reconsider the extent to which the Inland Steel Company's (Inland) and LTV's short-term interest income should offset expenses.

Copies of the Panel's Decision (Secretariat File No. CDA-94-1904-03) may be obtained from:

Canadian Section,
North American Free Trade Agreement Secretariat,
Royal Bank Centre,
90 Sparks Street,
Suite 705,
Ottawa, Ontario
K1P 5B4

Tel.: (613) 992-9388
Fax: (613) 992-9392

RESPONSE TO THE PANEL REMAND

The common element linking the remanded issues is the question of what is a "cost" for SIMA purposes. In order to establish normal values for the subject goods, the Deputy Minister must determine whether there are profitable sales of the subject goods in the exporting country (sections 15 and 16(2)(b)). In the absence of sufficient profitable sales, normal values are based on a constructed cost (paragraph 19(b)). In both exercises, the Deputy Minister is required to determine what is appropriately included as a cost of the subject goods.

As directed by the Panel, the Deputy Minister reconsidered the following cost issues.

Treatment of the B&LE Railroad Charge

This issue concerned the Department's allocation of the cost of an antitrust judgement against the B&LE to U.S.S.'s cost of subject goods. The B&LE was a former subsidiary of USX Corporation. The railroad was sold in 1988, but USX Corporation remained obligated for any liabilities arising from pending antitrust litigation.

USX Corporation is comprised of three main industry groups. In 1993, during the period of investigation, USX Corporation recorded the expenses in relation to the B&LE settlement in the overhead expenses of the "Steel Group". The Steel Group is comprised of a number of divisions including U.S.S., the steel making division.

For the final determination, the Department decided that the B&LE expense, although not directly related to the production of the subject goods, was a general overhead expense of the Steel Group. A portion was therefore allocated to all divisions of the Steel Group, including the steel making division. U.S.S. argued before the Panel that this expense was related to USX's former railroad operations and, therefore, was not attributable to the subject goods.

The Panel remanded the issue, directing the Department to reconsider whether the evidence on the record supported the conclusion that the B&LE expenses were connected to the subject goods. Relying on the Panel decision made in the Gypsum case, the Panel explained that a connection had to be made to the subject goods either as a cost directly related to those goods or an overhead cost properly allocated to the goods.

Upon reconsideration of the issue, the Department has determined that there is sufficient information on the record to link the B&LE expense to the general overhead expenses of the Steel Group. The annual report of the USX Corporation lists the B&LE litigation as one of the pending legal actions which could have a material impact on the financial statements of the Steel Group. The railroad's former iron ore transport activities represent one facet of an integrated steel producer. It was therefore, reasonable that USX Corporation attributed the B&LE expenses to the Steel Group, rather than to one of their other two groups which are engaged in the oil and gas industries.

Consequently, the B&LE expense is considered to be connected to the subject goods as an overhead cost properly allocated to all goods produced by the Steel Group, including the subject goods. As a result, no changes were made to the normal values and margins of dumping found for U.S.S. for the final determination.

Treatment of the Coal Retiree Act Charge

This issue dealt with the Department's inclusion of an interest expense associated with LTV's liabilities under the Coal Act as a cost of corrosion-resistant steel sheet under paragraphs 16(2)(b) and 19(b) of SIMA.

The Coal Act created a new benefit plan to provide medical and death benefits to qualifying beneficiaries. In the Panel review of the Cold Rolled Steel Sheet decision, the Panel determined that the initial charge under the Coal Act was directly attributable to LTV's idled coal operations. That Panel concluded that there was neither a legal nor factual basis for charges that directly relate to LTV's coal operation to be included in the calculation of the costs of its steel operation.

For the final determination in the corrosion-resistant steel sheet case, the Department argued that it had additional information on the current record to establish that LTV's "idled" coal operations were effectively non-existant. As a result, the Deputy Minister left the 1993 interest charges related to the Coal Act in the general overhead costs allocated to the subject goods. The Panel found that there was no basis on which to distinguish the facts of the present case from the facts of the Cold Rolled Steel Sheet decision.

In accordance with the Panel's direction, the interest charge related to the Coal Act is no longer included as a cost of the subject goods. The normal values and margins of dumping were revised accordingly.

Treatment of Interest Income

At the time of the Department's final determination, where interest income was deemed to be related to steel making, the Deputy Minister determined that it could be used to draw down the interest expenses. However, any excess interest income was not applied to offset any other category of expenses. LTV and Inland challenged these positions.

In addressing LTV's argument that the excess interest income should be used to offset other plant or corporate overhead expenses, the Panel acknowledged that it might be reasonable to limit interest income to offset only interest expenses, but directed the Department to provide a reasoned analysis to support this position. The Panel remanded to the Department for further consideration and for an explanation of the Department's policy on the question of whether interest income should be used to offset a wider category of expenses than interest expenses.

To establish normal values under SIMA, the Deputy Minister is required to calculate the costs for a number of categories of expenses to derive the full cost of the goods. The Panel in the Cold Rolled Steel Sheet decision ruled that SIMA does not preclude the calculation of net costs, but restricted the application of income offset to situations where the income matched the expenses. In other words, an expense could be offset by a related item of income, assuming both items were related to the production of the subject goods.

In responding to the remand, the Department set out the position that interest income and interest expenses are general accounts which record the results of the company's cash management activities. On this basis, they are related to each other, and effectively constitute a distinct category of costs, which in turn are unrelated to any other category of costs which arise from the production of the subject goods.

It is the Department's policy that where the producer can show that the interest income and interest expenses are related to the production of the subject goods, the Department will offset the interest expenses by the amount of interest income. However, any excess interest income is not used to offset any other category of costs associated with the production of the subject goods.

With respect to Inland, the Panel found that it was reasonable to assume that the company's short-term interest income was related to steel production. The Panel therefore directed the Department to offset the interest expenses by the amount of short-term interest income, unless there was evidence on the record that the short-term interest income was not related to steel production.

In response to the remand, the Department re-examined the record and found that there was no evidence to link the short-term interest income with anything other than steel production. Accordingly, Inland's short-term interest income was used to offset the interest expenses as directed by the Panel. The question of how to treat excess interest income was irrelevant as the amount of Inland's interest income did not exceed the amount of interest expenses.

DETERMINATION ON REMAND

As a result of reconsidering the issues remanded by the Panel, the Deputy Minister has, where applicable, revised normal values and recalculated the margins of dumping.

U.S. Steel

The only issue remanded by the Panel which concerned U.S.S. was the B&LE Railroad antitrust settlement expense. The Department provided additional reasons to support the position taken at the final determination. As a result, no change had been made to the normal values determined for U.S.S. as a result of this remand.

LTV Steel

At the final determination on June 29, 1994, some of the normal values for LTV were determined pursuant to section 15 of SIMA where domestic sales of like goods were deemed to be profitable. Normal values determined by this method were unaffected by the removal of the Coal Act interest expenses from costs, as all of the domestic sales were deemed to be profitable before the removal of the expenses associated with the Coal Act.

In instances where there were no domestic sales of like goods, normal values were determined using paragraph 19(b) of SIMA on the basis of the aggregate of the cost of production of the goods, an amount for administrative, selling and all other costs and an amount for profit. While removal of the Coal Act interest expenses lessened the total cost of the goods, this reduction was in large measure offset by the resultant increase in the amount for profit used in constructing normal values. This resulted in slight changes in individual normal values. Consequently, the adjustment to costs arising from the remand did not change the overall margin of dumping of 13.2% found for LTV Steel at the final determination.

In making the final determination, the margin of dumping must be specified for each importer in Canada. The slight change in normal values did result in the margin of dumping for one Canadian importer decreasing slightly from 13.2% to 13.1%, while the margin of dumping for another importer increased from 8.4% to 8.5%. As a result, the final determination of dumping was varied to reflect this revision. No adjustment to LTV's costs was made with respect to excess interest income.

Inland Steel

For the purposes of the final determination, Inland's domestic sales of like goods were deemed to be profitable and normal values were determined pursuant to section 15 of SIMA. The offset of interest expenses by short-term interest income had no impact on normal values since the domestic sales were profitable. As a consequence, there were no changes made to the normal values resulting from the remand. The margin of dumping found for Inland remains at 5.1%.

CONCLUSION

While the remand resulted in slight changes in the normal values for two of the complainants, their overall margins of dumping did not change. The margins of dumping of the subject goods and the actual and potential volumes of the dumped goods are not negligible. Accordingly, the Deputy Minister has varied the final determination of dumping with respect to certain corrosion-resistant steel sheet originating in or exported from the Unites States of America to give effect to the Panel's remand decision.

FUTURE ACTION

The Binational Panel has 90 days to review the Determination on Remand.

INFORMATION

For further information, please contact Ms. Judith Scott Houlahan, Senior Program Officer by telephone at (613) 952-6720 or Mr. Jody Grantham, Senior Program Officer at (613) 954-7405. They may also be contacted by telefax at (613) 941-2612 or at the following address:

Department of National Revenue
Anti-dumping and Countervailing Directorate
191 Laurier Avenue West
16th Floor, Sir Richard Scott Building
Ottawa, Ontario
K1A 0L5

B. Brimble
Director General
Anti-dumping and Countervailing Directorate